Mattel 2014 Annual Report Download - page 60

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Exchange Rate Risk
Currency exchange rate fluctuations may impact Mattel’s results of operations and cash flows. Inventory
transactions denominated in the Euro, British pound sterling, Mexican peso, Brazilian real, and Indonesian rupiah
were the primary transactions that caused foreign currency transaction exposure for Mattel during 2014, 2013,
and 2012. Mattel seeks to mitigate its exposure to market risk by monitoring its foreign currency transaction
exposure for the year and partially hedging such exposure using foreign currency forward exchange contracts
primarily to hedge its purchase and sale of inventory and other intercompany transactions denominated in foreign
currencies. These contracts generally have maturity dates of up to 18 months. For those intercompany receivables
and payables that are not hedged, the transaction gains or losses are recorded in the consolidated statement of
operations in the period in which the exchange rate changes as part of operating income or other non-operating
income/expense, net based on the nature of the underlying transaction. Transaction gains or losses on hedged
intercompany inventory transactions are recorded in the consolidated statement of operations in the period in
which the inventory is sold to customers. In addition, Mattel manages its exposure to currency exchange rate
fluctuations through the selection of currencies used for international borrowings. Mattel does not trade in
financial instruments for speculative purposes.
Mattel’s financial position is also impacted by currency exchange rate fluctuations on translation of its net
investments in subsidiaries with non-US dollar functional currencies. Assets and liabilities of subsidiaries with
non-US dollar functional currencies are translated into US dollars at fiscal year-end exchange rates. Income,
expense, and cash flow items are translated at weighted average exchange rates prevailing during the fiscal year.
The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive
loss within stockholders’ equity. Mattel’s primary currency translation exposures during 2014 were related to its
net investments in entities having functional currencies denominated in the Euro, Mexican peso, British pound
sterling, Russian ruble, and Brazilian real.
There are numerous factors impacting the amount by which Mattel’s financial results are affected by foreign
currency translation and transaction gains and losses resulting from changes in currency exchange rates,
including, but not limited to, the level of foreign currency forward exchange contracts in place at a given time
and the volume of foreign currency-denominated transactions in a given period. However, assuming that such
factors were held constant, Mattel estimates that a 1 percent change in the US dollar Trade-Weighted Index
would impact Mattel’s net sales by approximately 0.5% and its full year earnings per share by approximately
$0.01 to $0.02.
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